When the Guelph real estate market gets tight or competitive, offering more money is only one way to secure the home you want. However, as a savvy buyer, you want to use every advantage available to get the best possible price and terms.
Obtaining a pre-approval before you even begin searching for your next house can set you up for success. Many buyers ignore this simple step, but being a little more prepared allows you to budget effectively while bolstering your negotiating power. In this post, we’ll share everything you need to know about pre-approvals and how they make your home-buying journey easier and more streamlined.
Pre-Qualification Vs Pre-Approval
If you’ve ever typed anything even remotely related to buying a home into a Google search, you’ll start seeing all kinds of advertisements from lenders. One of these is undoubtedly an offer to get“pre-qualified” for a mortgage in just minutes. Is it legit? The short answer is yes, but there’s a little more to it.
The process above is called pre-qualification. It often gets confused with a pre-approval, but they are not at all the same. A pre-qualification can give you a rough idea of what you might be able to borrow when buying a home. However, the emphasis is on “rough idea.”
A lender isn’t about to provide hundreds of thousands of dollars based on results from a three-minute questionnaire. It’s just an estimate. Once the lender has more information, they might provide you with more, less, or not approve your loan at all.
A pre-approval is an in-depth process, where you will provide more information, and the lender will perform a credit check. Though it is still considered an estimate, it is far more accurate and likely to be approved once you’re ready to buy.
Looking for more guidance to buy your first home? Here are some resources that will help:
- The Ultimate Guide for First-Time Buyers in Guelph
- Is it Time to Leave the Guelph Rental Market Behind?
- Real Estate 101 for First-Time Buyers
A Deep Dive Into the Pre-Approval Process
Like a pre-qualification, a mortgage pre-approval gives you an estimate of how much a lender may provide for your home purchase. Unlike a pre-qualification, you cannot complete a pre-approval in the time it takes to reheat leftovers in the toaster oven.
Though you can do a pre-approval online, it’s often beneficial to visit a reputable mortgage broker who can help you with the process and open up more options.
Alternatively, you can work with your regular bank, although you won’t be able to shop for better interest rates. If you wish to shop lenders, a mortgage broker is your best bet since you don’t want multiple hard credit checks on your financial record.
Before starting, gather up the documents you will need, such as your social insurance number, bank and loan statements, and proof of employment. You’ll also fill out a mortgage application, and the lender will perform a more rigorous review of your finances, including your income, assets, and debt load.
Once approved, you’ll receive a certificate of pre-approval that shows the maximum amount the lender will provide.
The Advantages of a Pre-Approval
Having that certificate of pre-approval in hand is one giant step towards your goal of buying a home. Now that you know how much you can borrow, you can calculate a realistic budget range for your purchase.
You can also start creating a list of wants and needs that you’d like to see in your new home. And that’s just the beginning of the advantages your pre-approval gives you.
You can secure the lowest rate between now and when you make your purchase, to a maximum of 90 to 120 days. You no longer need to worry about interest rates rising before a seller accepts your offer. If the rates go down, you also benefit. Locking in the lowest rates is one of the biggest advantages of having a pre-approval.
Your pre-approval can be a potent tool to negotiate with sellers. If a homeowner has multiple offers, they are far more likely to choose a buyer (like you) who can prove they have access to financing. Sometimes, you can even negotiate a price concession for this extra level of reassurance.
Understanding financing is an essential first step to a successful purchase. The related posts below will give you more insight:
- Straight Talk About Second Mortgages and Refinancing
- Common First Time Buyer Questions Answered By Mortgage Specialist
- How to Choose the Right Mortgage Broker
The Limits of Your Pre-Approval
Though a pre-approval helps to pave the way for a successful home purchase, it is not a bulletproof process. That certificate is useful, but it is not a guarantee that your mortgage will ultimately be approved. Here are a few caveats you should always keep at the forefront of your mind:
- If your financial situation or employment status changes, the lender could reduce the amount of your mortgage or disqualify you altogether. This is why your real estate agent will recommend that you don’t take out a car loan or switch jobs unnecessarily before your purchase is complete.
- Be aware of appraisals. Your pre-approval is also based on the fair market value of the home, not just your ability to pay. If you offer more money in an attempt to compete with other buyers, you’ll likely have to come up with those extra funds on your own.
When to Get a Pre-Approved or Pre-Qualification
The main difference between a pre-qualification and a pre-approval is intent. Think of it as though you were shopping online.
- A pre-qualification is like adding items you might think about buying to a wishlist. Maybe you will revisit the page later, or you might forget about it altogether.
- A pre-approval is more like clicking the “Add to Cart” button. The transaction is not yet final, but you are getting close.
If you’re tossing around the idea of buying a home but aren’t 100% sure that’s what you want, getting a pre-qualification can be an excellent step. No credit check is necessary, so the level of commitment is low.
For serious buyers who want to secure a new home and are ready to act, a pre-approval will take you much further. You can start with a pre-qualification if you prefer or you can move straight to the pre-approval process. There is still no obligation, but it does allow you to get the ball rolling faster.
Do you have other questions about buying a home in Guelph or the Tri-Cities? Our experienced real estate agents are happy to provide the information you need to make the best decision. Reach out today to info@gowylde.ca or call 519-826-7109 to take the next step.
